Quote from: lemonginger on June 27, 2011, 08:25:50 PM

again nothing false in your statements, but don't really apply to labor theory(ies) of value but rather the debasement of a fiat currency through inflation

Yes but I'm trying to discuss the importance of how inflation occurs and posit the theory that it does matter how the money supply is increased.

One of my economics professors suggested that the Fed could just as easily throw new money out the window rather than use new money to buy securities. So when I decided to write a rebuttal to this article http://www.quora.com/Bitcoin/Is-the-cryptocurrency-Bitcoin-a-good-idea and specifically the "Seeding Initial Wealth" section of the article I initially approached the article with my professor's allusion to the idea that the method of increasing the money supply might not matter.

So in order to write a rebuttal to the quora article, which was so obviously erroneous in a number of places (and correct in others) I really had to do some thinking and I was reminded of this video, from one of my favorite old movies: http://www.youtube.com/watch?v=boUD5eG9Bf4 .

In the video the old miner character explains that gold is valuable because it takes so much work to mine it and that when you buy an ounce of gold you're paying for the hours and hours of labor that went into acquiring it. At the time I originally saw this movie I'd already taken microeconomics at Uni and received a very high grade so I had an understanding of how a price is decided upon that apparently ran contrary to the common-sense explanation of miner. So at the time when I originally saw the movie, "The Treasure of the Sierra Madre" I was a little perplexed by the apparent contradiction.

Fortunately, however, at the time of writing this article I'd also taken some higher level economics courses and had a more enlightened viewpoint which caused me to look at money as a good and understand that money, or gold even, was subject to the same supply and demand valuation.

So the controversial part of my writing is that the method of expanding the money supply affects inflation and that ultimately dumping money out the window (or, for instance, buying worthless mortgages) will result in a different rate of inflation than using new money to buy valuable securities. Or as we're seeing happen with bitcoin, as the difficulty of mining increases so does the value of the good (i.e. bitcoins).